ECON EXAM MIDTERM
If the GDP deflator in 2009 equals 1.25 and nominal GDP in 2009 equals $15 trillion, what is the value of real GDP in 2009? A) $12 trillion B) $12.5 trillion C) $15 trillion D) $18.75 trillion
A) $12 trillion
In 2013, the GDP of the United States totaled about: A) $16.8 billion. B) $168 billion. C) $16.8 trillion. D) $168 trillion.
A) $16.8 billion.
If GDP measured in billions of current dollars is $5,465, consumption is $3,657, investment is $741, and net exports are -$1,910, then government purchases are: A) $2,977. B) $1,910. C) -$843. D) $1,067.
A) $2,977.
Assume that an economy is described by a Cobb-Douglas production function. If average labor productivity is growing rapidly: A) labor's share of total income will be increasing. B) labor's share of total income will be decreasing. C) workers will experience high rates of real wage growth. D) economic profits will be positive.
C) workers will experience high rates of real wage growth.
If GDP measured in billions of current dollars is $5,465, consumption is $3,657, investment is $741, and government purchases are $1,098, then net exports are: A) $131. B) -$131. C) $31. D) -$31.
D) -$31.
Assume that the market basket of goods and services purchased in 2004 by the average family in the United States costs $14,000 in 2004 prices, whereas the same basket costs $21,000 in 2009 prices. However, the basket of goods and services actually purchased by the average family in 2009 costs $20,000 in 2009 prices, whereas this same basket would have cost $15,000 in 2004 prices. Given these data, a Laspeyres price index of 2009 prices using 2004 as the base year would be: A) 1.05. B) approximately 1.07. C) approximately 1.33. D) 1.50.
D) 1.50.
Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 - 100r, where r is the real interest rate, in percent. In this case, the equilibrium real interest rate is: A) 5 percent. B) 8 percent. C) 10 percent. D) 13 percent.
D) 13 percent.
If the unemployment rate is 6 percent and the number of employed is 188 million, then the labor force equals ______ million. A) 11.28 B) 176.72 C) 188 D) 200
D) 200
If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is ______ percent. A) 1 B) 3 C) 4 D) 7
D) 7
All of the following actions are investments in the sense of the term used by macroeconomists except: A) Apple's building a new factory. B) a corner candy store's buying a new computer. C) John Smith's buying a newly constructed home. D) Sandra Santiago's buying 100 shares of Apple stock.
D) Sandra Santiago's buying 100 shares of Apple stock.
A trade in a barter economy requires: A) currency. B) a check. C) scrip. D) a double coincidence of wants.
D) a double coincidence of wants.
The ex post real interest rate will be greater than the ex ante real interest rate when the: A) rate of inflation is increasing. B) rate of inflation is decreasing. C) actual rate of inflation is greater than the expected rate of inflation. D) actual rate of inflation is less than the expected rate of inflation.
D) actual rate of inflation is less than the expected rate of inflation.
In a system with fractional-reserve banking: A) all banks must hold reserves equal to a fraction of their loans. B) no banks can make loans. C) the banking system completely controls the size of the money supply. D) all banks must hold reserves equal to a fraction of their deposits.
D) all banks must hold reserves equal to a fraction of their deposits.
According to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their: A) supply. B) equilibrium growth rates. C) relative political power. D) marginal productivities.
D) marginal productivities.
Net national product equals GNP: A) plus net investment. B) minus net investment. C) plus depreciation. D) minus depreciation.
D) minus depreciation.
The real return on holding money is A) the real interest rate. B) minus the real interest rate. C) the inflation rate. D) minus the inflation rate.
D) minus the inflation rate.
The characteristic of the classical model that the money supply does not affect real variables is called: A) the monetary basis. B) monetary policy. C) the quantity theory of money. D) monetary neutrality.
D) monetary neutrality.
Money's liquidity refers to the ease with which: A) coins can be melted down. B) illegally obtained money can be laundered. C) loans can be floated. D) money can be converted into goods and services.
D) money can be converted into goods and services.
When economists speak of "the" interest rate, they mean: A) the rate on 90-day Treasury bills. B) the Fed Funds rate. C) the "prime" rate on mortgage loans. D) no particular interest rate; it's usually an innocuous assumption since real interest rates tend to move up and down together.
D) no particular interest rate; it's usually an innocuous assumption since real interest rates tend to move up and down together.
If income velocity is assumed to be constant, but no other assumptions are made, the level of ______ is determined by M. A) prices B) real GDP C) transactions D) nominal GDP
D) nominal GDP
The labor force equals the: A) adult population. B) number of employed individuals. C) number of unemployed individuals. D) number of employed and unemployed individuals.
D) number of employed and unemployed individuals.
An economy's factors of production and its production function determine the economy's: A) labor-force participation rate. B) budget surplus or deficit. C) population growth rate. D) output of goods and services.
D) output of goods and services.
A fixed-weight price index like the CPI ______ the change in the cost of living because it ______ take into account that people can substitute less expensive goods for ones that have become more expensive. A) underestimates; does not B) overestimates; does C) accurately estimates; does D) overestimates; does not
D) overestimates; does not
For borrowing from the discount window, the Fed sets the _____ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _____ of borrowing. A) maximum quantity; minimum quantity B) minimum price; maximum price C) quantity; price D) price; quantity
D) price; quantity
In a fractional-reserve banking system, banks create money because: A) each dollar of reserves generates many dollars of demand deposits. B) banks have the legal authority to issue new currency. C) funds are transferred from households wishing to save to firms wishing to borrow. D) the wealth of the economy expands when borrowers undertake new debt obligations.
A) each dollar of reserves generates many dollars of demand deposits.
Variables that a model tries to explain are called: A) endogenous. B) exogenous. C) market clearing. D) fixed.
A) endogenous.
Equilibrium in the market for goods and services determines the ______ interest rate, and the expected rate of inflation determines the ______ interest rate. A) ex ante real; ex ante nominal B) ex post real; ex post nominal C) ex ante nominal; ex post real D) ex post nominal; ex post real
A) ex ante real; ex ante nominal
When a person purchases a 90-day Treasury bill, he or she cannot know the: A) ex post real interest rate. B) ex ante real interest rate. C) nominal interest rate. D) expected rate of inflation.
A) ex post real interest rate.
The total income of everyone in the economy is exactly equal to the total: A) expenditure on the economy's output of goods and services. B) consumption expenditures of everyone in the economy. C) expenditures of all businesses in the economy. D) government expenditures.
A) expenditure on the economy's output of goods and services.
In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget surplus or deficit. D) rate of economic and accounting profit.
A) factors of production and production function.
All of the following actions increase government purchases of goods and services except the: A) federal government's sending a Social Security check to Betty Jones. B) federal government's sending a paycheck to the president of the United States. C) federal government's buying a Patriot missile. D) city of Boston's buying a library book.
A) federal government's sending a Social Security check to Betty Jones.
Real GDP ______ over time, and the growth rate of real GDP ______. A) grows; fluctuates B) is steady; is steady C) grows; is steady D) is steady; fluctuates
A) grows; fluctuates
In the classical model with fixed income, if the interest rate is too low, then investment is too ______, and the demand for output ______ the supply. A) high; exceeds B) high; falls short of C) low; exceeds D) low; falls short of
A) high; exceeds
According to the model developed in Chapter 3, when government spending increases but taxes stay the same, interest rates: A) increase. B) are unchanged. C) decrease. D) can vary.
A) increase.
Skill-biased technological change ______ the demand for high-skilled workers, while a slowdown in the pace of educational advancement reduces the supply of skilled workers. If we observed both of these phenomena, we would expect _____ wages for skilled workers. A) increases; higher B) increases; lower C) decreases; higher D) decreases; lower
A) increases; higher
Disposable personal income: A) is computed by subtracting personal tax from personal income. B) is generally greater than personal income. C) includes corporate profits but not dividends. D) does not include government transfers to individuals.
A) is computed by subtracting personal tax from personal income.
A small country might want to use the money of a large country rather than print its own money if the small country: A) is likely to be unstable, whereas the large country is likely to be stable. B) is likely to be stable, whereas the large country is likely to be unstable. C) needs the revenue for seigniorage. D) wants to control its own inflation rate.
A) is likely to be unstable, whereas the large country is likely to be stable.
The ability of macroeconomists to predict the future course of economic events: A) is no better than a meteorologist's ability to predict the next month's weather. B) is much better than a meteorologist's ability to predict the next month's weather. C) has gotten worse over time. D) is less precise than it was in the 1920s.
A) is no better than a meteorologist's ability to predict the next month's weather.
The costs of reprinting catalogs and price lists because of inflation are called: A) menu costs. B) shoeleather costs. C) variable yardstick costs. D) fixed costs.
A) menu costs.
During the period between 1900 and 2000, the unemployment rate in the United States was highest in the: A) 1920s. B) 1930s. C) 1970s. D) 1980s.
B) 1930s.
Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent. A) 10 B) 20 C) 30 D) 40
B) 20
If the average price of goods and services in the economy equals $10 and the quantity of money in the economy equals $200,000, then real balances in the economy equal: A) 10. B) 20,000. C) 200,000. D) 2,000,000.
B) 20,000.
All of the following transactions that took place in 2009 would be included in GDP for 2009 except the purchase of a: A) book titled The Year 3000 that was printed in 2009. B) 2001 Jeep Cherokee. C) year 2010 calendar printed in 2009. D) ticket to see the movie 2001.
B) 2001 Jeep Cherokee.
If 7 million workers are unemployed, 143 million workers are employed, and the adult population equals 200 million, then the unemployment rate equals approximately ______ percent. A) 3.5 B) 4.7 C) 4.9 D) 7
B) 4.7
Consider the money demand function that takes the form (M / P)d = Y / (4i), where M is the quantity of money, P is the price level, Y is real output, and i is the nominal interest rate. What is the average velocity of money in this economy? A) i B) 4i C) 1 / (4i) D) 0.25
B) 4i
Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate, in percent. In addition, assume that G=0. In this case, the equilibrium real interest rate is: A) 2 percent. B) 5 percent. C) 10 percent. D) 20 percent.
B) 5 percent.
If income is 4,800, consumption is 3,500, government spending is 1,000, and taxes minus transfers are 800, private saving is: A) 300. B) 500. C) 1,000. D) 1,300.
B) 500.
The economic statistic used to measure the level of prices is: A) GDP. B) CPI. C) GNP. D) real GDP.
B) CPI.
Open-market operations are: A) Commerce Department efforts to open foreign markets to international trade. B) Federal Reserve purchases and sales of government bonds. C) Securities and Exchange Commission rules requiring open disclosure of market trades. D) Treasury Department purchases and sales of the U.S. gold stock.
B) Federal Reserve purchases and sales of government bonds.
The statistic economists use to measure the value of economic output is: A) the CPI. B) GDP. C) the GDP deflator. D) the unemployment rate.
B) GDP.
The national income accounts identity for an open economy is: A) Y = C + I + G - NX. B) Y = C + I + G + NX. C) Y = C + I + G. D) Y = C + I - G.
B) Y = C + I + G + NX.
Chain-weighted measures of real GDP make use of prices from: A) an unchanging base year. B) a continuously changing base year. C) a base year that is changed approximately every 5 years. D) a base year that is changed approximately every 10 years.
B) a continuously changing base year.
Which of the following would decrease the real exchange rate in a small open economy? A) a personal income tax cut B) a reduction in government spending C) a tariff on imports D) an increase in investment
B) a reduction in government spending
The marginal product of labor is: A) output divided by labor input. B) additional output produced when one additional unit of labor is added. C) additional output produced when one additional unit of labor and one additional unit of capital are added. D) value of additional output when one dollar's worth of additional labor is added.
B) additional output produced when one additional unit of labor is added.
The labor-force participation rate is the percentage of the: A) adult population that is employed. B) adult population that is in the labor force. C) labor force that is employed. D) labor force that is unemployed.
B) adult population that is in the labor force.
Real money balances equal the: A) sum of coin, currency, and balances in checking accounts. B) amount of money expressed in terms of the quantity of goods and services it can purchase. C) number of dollars used as a medium of exchange. D) quantity of money created by the Federal Reserve.
B) amount of money expressed in terms of the quantity of goods and services it can purchase.
Government transfer payments: A) are included as part of government purchases, G. B) can be viewed as negative tax payments, T. C) are received as payment for inputs in the factor market. D) do not affect the level of public or private saving.
B) can be viewed as negative tax payments, T.
The largest component of national income is: A) corporate profits. B) compensation of employees. C) proprietors' income. D) net interest.
B) compensation of employees.
Payment is deferred by using _______, but immediate access to funds occurs when using ______. A) currency; demand deposits B) credit cards; debit cards C) demand deposits; savings deposits D) debit cards; credit cards
B) credit cards; debit cards
In the classical model with fixed income, if the demand for goods and services is less than the supply, the interest rate will: A) increase. B) decrease. C) remain unchanged. D) either increase or decrease, depending on whether consumption is greater or less than investment.
B) decrease.
When a firm sells a product out of inventory, investment expenditures ______, and consumption expenditures ______. A) increase; decrease B) decrease; increase C) decrease; remain unchanged D) remain unchanged; increase
B) decrease; increase
A woman marries her butler. Before they were married, she paid him $60,000 per year. He continues to wait on her as before (but as a husband rather than as a wage earner). She earns $1,000,000 per year both before and after her marriage. The marriage: A) does not change GDP. B) decreases GDP by $60,000. C) increases GDP by $60,000. D) increases GDP by more than $60,000.
B) decreases GDP by $60,000.
If the consumption function is given by C = 150 + 0.85(Y - T) and T increases by 1 unit, then saving A) decreases by 0.85 units. B) decreases by 0.15 units. C) increases by 0.15 units. D) increases by 0.85 units.
B) decreases by 0.15 units.
Endogenous variables are: A) fixed at the moment they enter the model. B) determined within the model. C) the inputs of the model. D) from outside the model.
B) determined within the model.
Variables that a model takes as given are called: A) endogenous. B) exogenous. C) market clearing. D) macroeconomic.
B) exogenous.
In the national income accounts, net exports equal: A) exported goods minus imported goods. B) exported goods and services minus imported goods and services. C) exported goods minus imported services. D) exported goods and services plus imported goods and services.
B) exported goods and services minus imported goods and services.
Important characteristics of macroeconomic models include all of the following except: A) simplifying assumptions. B) functional relationships based on randomized control trials. C) endogenous and exogenous variables. D) implicit or explicit consistency with microeconomic foundations.
B) functional relationships based on randomized control trials.
Assume that a rancher sells McDonald's a quarter-pound of meat for $1 and that McDonald's sells you a hamburger made from that meat for $2. In this case, GDP increases by: A) $0.50. B) $1. C) $2. D) $3.
C) $2.
If GDP measured in billions of current dollars is $5,465 and the sum of consumption, investment, and government purchases is $5,496, while exports equal $673, imports are: A) $673. B) -$673. C) $704. D) -$704.
C) $704.
Assume that the production function is Cobb-Douglas with parameter = 0.3. If capital and labor are paid their marginal products, they receive the shares of income: A) 0.3 and 0.3. B) 0.7 and 0.7. C) 0.3 and 0.7. D) 0.7 and 0.3.
C) 0.3 and 0.7.
If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator? A) 0.79 B) 1.03 C) 1.27 D) 3.2
C) 1.27
Based on the table, what is the reserve-deposit ratio at the bank? A) 3 percent B) 5 percent C) 10 percent D) 15 percent
C) 10 percent
Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + t1Y, and Y = 50K0.5L0.5, where K = 100 and L = 100. If t1 increases from 0.2 to 0.25, then consumption decreases by: A) 70. B) 140. C) 175. D) 250.
C) 175.
If the adult population equals 250 million, of which 145 million are employed and 5 million are unemployed, the labor-force participation rate equals ______ percent. A) 50 B) 58 C) 60 D) 67
C) 60
Assume that the investment function is given by I = 1,000 - 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 10 percent and the inflation rate is 2 percent. According to the investment function, investment will be: A) 240. B) 700. C) 760. D) 970.
C) 760.
If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in: A) inflation of 1 percent and the nominal interest rate of less than 1 percent. B) inflation of 1 percent and the nominal interest rate of 1 percent. C) inflation of 1 percent and the nominal interest rate of more than 1 percent. D) both inflation and the nominal interest rate of less than 1 percent.
C) inflation of 1 percent and the nominal interest rate of more than 1 percent.
The underground economy: A) is included in the latest GDP accounts. B) includes only illegal activities. C) includes domestic workers for whom Social Security tax is not collected. D) excludes the illegal drug trade.
C) includes domestic workers for whom Social Security tax is not collected.
National saving refers to: A) disposable income minus consumption. B) taxes minus government spending. C) income minus consumption minus government purchases. D) income minus investment.
C) income minus consumption minus government purchases.
A typical trend during a recession is that: A) the unemployment rate falls. B) the popularity of the incumbent president rises. C) incomes fall. D) the inflation rate rises.
C) incomes fall.
The demand for real money balances is generally assumed to: A) be exogenous. B) be constant. C) increase as real income increases. D) decrease as real income increases.
C) increase as real income increases.
If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports ______, and U.S. imports ______. A) increase; increase B) decrease; decrease C) increase; decrease D) decrease; increase
C) increase; decrease
If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then saving: A) decreases by 0.85 units. B) decreases by 0.15 units. C) increases by 0.15 units. D) increases by 0.85 units.
C) increases by 0.15 units.
The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _____ increases in the monetary base and _____ increases in money supply. A) no; no B) large; larger C) large; smaller D) small; smaller
C) large; smaller
The lower the real exchange rate is, the ______ expensive domestic goods are relative to foreign goods, and the ______ the demand is for net exports. A) more; greater B) more; smaller C) less; greater D) less; smaller
C) less; greater
When the demand for loanable funds exceeds the supply of loanable funds, households want to save ______ than firms want to invest, and the interest rate ______. A) more; rises B) more; falls C) less; rises D) less; falls
C) less; rises
Assets of banks include: A) money market mutual funds. B) currency in the hands of the public. C) loans to customers. D) demand deposits.
C) loans to customers.
Assume that a tire company sells four tires to an automobile company for $400, another company sells a compact disc player for $500, and the automobile company puts all of these items in or on a car that it sells for $20,000. In this case, the amount from these transactions that should be counted in GDP is: A) $20,000. B) $20,000 less the automobile company's profit on the car. C) $20,900. D) $20,900 less the profits of all three companies on the items that they sold.
A) $20,000.
If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent. A) 2 B) 3 C) 5 D) 8
A) 2
If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent. A) 3 B) 4 C) 9 D) 11
A) 3
The quantitative easing policy conducted by the Federal Reserve between 2007 and 2011 resulted in a large increase in the monetary base that was partially offset by: A) a significant increase in the reserve-deposit ratio. B) a significant decrease in the reserve-deposit ratio. C) open-market purchases. D) open-market sales.
A) a significant increase in the reserve-deposit ratio.
In a small open economy, if the world interest rate is r1, then the economy has: A) a trade surplus. B) balanced trade. C) a trade deficit. D) negative capital outflows.
A) a trade surplus.
Net exports equal GDP minus domestic spending on: A) all goods and services. B) all goods and services plus foreign spending on domestic goods and services. C) domestic goods and services. D) domestic goods and services minus foreign spending on domestic goods and services.
A) all goods and services.
In the circular flow model, the flow of dollars from firms to households is paid _____, and the flow of dollars from households to firms is paid _____. A) as wages, capital income, and profits; for goods and services B) for value added; as imputed values C) in current dollars; in constant dollars D) as interest and dividends; for depreciation and taxes
A) as wages, capital income, and profits; for goods and services
An example of decreasing returns to scale is when capital and labor inputs: A) both increase 10 percent and output increases 5 percent. B) both increase 10 percent and output increases 10 percent. C) both increase 5 percent and output increases 10 percent. D) do not change and output increases 5 percent.
A) both increase 10 percent and output increases 5 percent.
To increase the money supply, the Federal Reserve: A) buys government bonds. B) sells government bonds. C) buys corporate stocks. D) sells corporate stocks.
A) buys government bonds.
Based on a Cobb-Douglas production function and perfect capital mobility, capital should flow to economies in which: A) capital is relatively scarce. B) capital is relatively abundant. C) technological production capabilities are inferior. D) labor is relatively scarce.
A) capital is relatively scarce.
A country that is on a gold standard uses: A) commodity money. B) fiat money. C) credit money. D) the barter system.
A) commodity money.
In examining the impact of fiscal policy, it is assumed that: A) consumption, investment, and the interest rate are endogenous variables. B) consumption, investment, and the interest rate are exogenous variables. C) government purchases, taxes, and interest rates are endogenous variables. D) government purchases, taxes, and interest rates are exogenous variables.
A) consumption, investment, and the interest rate are endogenous variables.
In the national income accounts, the purchases of durables, nondurables, and services by households are classified as: A) consumption. B) investment. C) government purchases. D) net exports.
A) consumption.
Nominal GDP means the value of goods and services is measured in ______ prices. A) current B) real C) constant D) average
A) current
If the Federal Reserve wishes to increase the money supply, it should: A) decrease the discount rate. B) increase interest paid on reserves. C) sell government bonds. D) decrease the monetary base.
A) decrease the discount rate.
In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade ______ and ______ net capital outflow. A) deficit; negative B) surplus; negative C) deficit; positive D) surplus; positive
A) deficit; negative
A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.
A) depression.
In a small, open economy if net exports are negative, then: A) domestic spending is greater than output. B) saving is greater than investment. C) net capital outflows are positive. D) imports are less than exports.
A) domestic spending is greater than output.
In a large open economy, the real interest rate is determined by: A) national saving, the domestic investment function, and the net capital outflow function. B) national saving, the domestic investment function, and the net exports function. C) the domestic investment function, the net capital outflow function, and the net exports function. D) national saving, the domestic investment function, the net capital outflow function, and the net exports function.
A) national saving, the domestic investment function, and the net capital outflow function.
In a closed economy, Y - C - G equals: A) national saving. B) private saving. C) public saving. D) financial saving.
A) national saving.
The annual inflation rate in the United States averaged: A) nearly zero between 1900 and 1950. B) nearly zero between 1950 and 2000. C) about 10 percent between 1900 and 1950. D) about 10 percent between 1950 and 2000.
A) nearly zero between 1900 and 1950.
In a large open economy, if an import quota is adopted, then: A) net exports remain unchanged, as imports and exports decrease by equal amounts, while the real exchange rate rises. B) net exports remain unchanged, as imports and exports decrease by equal amounts, while the real exchange rate falls. C) net exports rise and the real exchange rate rises. D) net exports rise and the real exchange rate falls.
A) net exports remain unchanged, as imports and exports decrease by equal amounts, while the real exchange rate rises.
Assume that a firm is considering building a factory that will cost $5 million. It believes that it can get a profit from this factory of $600,000 per year for many years. The interest rate at which the firm can borrow money is 15 percent. After evaluating whether it should build the factory, the firm decides that it should: A) not build because the rate of return on the factory is only 6 percent. B) not build because the rate of return on the factory is only 12 percent. C) build because the rate of return on the factory is 30 percent. D) build because the rate of return on the factory is 35 percent.
A) not build because the rate of return on the factory is only 6 percent.
Two striking features of a graph of U.S. real GDP per capita over the twentieth century are the: A) overall upward trend interrupted by a large downturn due to the economic depression in the 1930s. B) nearly constant level with a large downturn in the 1930s. C) downward trend in the first half of the century followed by the upward trend in the second half. D) constant level in the first half of the century followed by the upward trend in the second half.
A) overall upward trend interrupted by a large downturn due to the economic depression in the 1930s.
The panel of economists appointed by the Senate Finance Committee estimated that the CPI ______ inflation by approximately ______ percentage point(s) per year. A) overestimates; 1 B) overestimates; 10 C) underestimates; 1 D) underestimates; 10
A) overestimates; 1
If domestic saving exceeds domestic investment, then net exports are ______ and net capital outflows are ______. A) positive; positive B) positive; negative C) negative; negative D) negative; positive
A) positive; positive
All of the following are types of macroeconomics data except the: A) price of a computer. B) growth rate of real GDP. C) inflation rate. D) unemployment rate.
A) price of a computer.
In a small open economy in equilibrium: A) saving is fixed, and investment is determined by the investment function and the world interest rate. B) investment is fixed, and saving is determined by the saving function and the world interest rate. C) saving is fixed, and investment is determined by the trade balance. D) investment is fixed, and saving is determined by the trade balance.
A) saving is fixed, and investment is determined by the investment function and the world interest rate.
An increase in the price of imported goods will show up in: A) the CPI but not in the GDP deflator. B) the GDP deflator but not in the CPI. C) both the CPI and the GDP deflator. D) neither the CPI nor the GDP deflator.
A) the CPI but not in the GDP deflator.
In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then ______ determines real GDP and ______ determines nominal GDP. A) the productive capability of the economy; the money supply B) the money supply; the productive capability of the economy C) velocity; the money supply D) the money supply; velocity
A) the productive capability of the economy; the money supply
GDP is all of the following except: A) the total expenditure of everyone in the economy. B) the total income of everyone in the economy. C) the overall expenditure on the economy's output of goods and services. D) the total output of the economy.
A) the total expenditure of everyone in the economy.
Which of the following is a stock variable? A) wealth B) consumption C) investment D) income
A) wealth
Assume that a firm buys all the parts that it puts into an automobile for $10,000, pays its workers $10,000 to fabricate the automobile, and sells the automobile for $22,000. In this case, the value added by the automobile company is: A) $10,000. B) $12,000. C) $20,000. D) $22,000.
B) $12,000.
If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals: A) $100 billion. B) $150 billion. C) $600 billion. D) $650 billion.
B) $150 billion.
A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread for $6. The value added by the miller is: A) $1. B) $2. C) $3. D) $6.
B) $2.
Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 4 in 2009, then real GDP (in 2002 prices) in 2009 was: A) $5. B) $6.50. C) $9.50. D) $11.
B) $6.50.
Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is: A) 10 pieces of fruit. B) $7. C) $8. D) $10.
B) $7.
In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals: A) -$25 billion. B) -$10 billion. C) $10 billion. D) $25 billion.
B) -$10 billion.
If total investment measured in billions of current dollars equals $741, business fixed investment is $524, and residential fixed investment is $222, then inventory investment is: A) $5. B) -$5. C) $15. D) -$15.
B) -$5.
Total investment in the United States averages about ______ percent of GDP. A) 10 B) 15 C) 20 D) 25
B) 15
Measuring the rate of inflation using a market basket that excludes food and energy prices is preferred by some analysts because this measure, called core inflation, A) provides a real, rather than a nominal, rate of inflation. B) gives a better measure of ongoing, sustained price changes. C) is more consistent with measures of inflation used in other countries. D) fluctuates more than measures of inflation that include food and energy prices.
B) gives a better measure of ongoing, sustained price changes.
In 1932, the U.S. government imposed a 2-cent tax on checks written on deposits in bank accounts. This action would be expected to ______ the currency-deposit ratio and ______ the money supply. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease
B) increase; decrease
For much of the twentieth century, skill-biased technological change ______ the demand for high-skilled workers, while the increase in the pace of educational advancement increased the supply of skilled workers. Because educational advancement _______ skill-biased technological change, we should expect _____ wages for skilled workers. A) increased; outpaced; higher B) increased; outpaced; lower C) decreased; slowed down; higher D) decreased; slowed down; lower
B) increased; outpaced; lower
If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation: A) increases by 2 percent. B) increases by 1 percent. C) remains constant. D) decreases by 1 percent.
B) increases by 1 percent.
Assume that the production function is Cobb-Douglas with parameter = 0.3. In the neoclassical model, if the labor force increases by 10 percent, then output: A) increases by about 10 percent. B) increases by about 7 percent. C) increases by about 3 percent. D) does not increase since the new workers are unemployed.
B) increases by about 7 percent.
Crowding out occurs when an increase in government spending ______ the interest rate and investment ______. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases
B) increases; decreases
In a small open economy with perfect capital mobility, a reduction in the government's budget deficit ______ net exports, and the real exchange rate ______. A) increases; appreciates B) increases; depreciates C) decreases; appreciates D) decreases; depreciates
B) increases; depreciates
In the neoclassical model with fixed income, if there is a decrease in government spending with no change in taxes, then public saving ______ and private saving ______. A) increases; increases B) increases; does not change C) decreases; increases D) decreases; does not change
B) increases; does not change
Expansionary fiscal policy in a large open economy ______ the real interest rate and ______ the real exchange rate. A) does not change; increases B) increases; increases C) increases; decreases D) decreases; increases
B) increases; increases
In a simple model of the supply and demand for pizza, when buyers' income increases, the price of pizza ______ and the quantity purchased ______. A) increases; decreases B) increases; increases C) decreases; increases D) decreases; decreases
B) increases; increases
A measure of how fast the general level of prices is rising is called the: A) growth rate of real GDP. B) inflation rate. C) unemployment rate. D) market-clearing rate.
B) inflation rate.
In the national income accounts, goods bought for future use are classified as which type of expenditure? A) services B) investment C) government purchases D) net exports
B) investment
The real exchange rate: A) measures how many Japanese yen you can get for one U.S. dollar. B) is equal to the nominal exchange rate (measured in units of the foreign currency divided by units of home currency) multiplied by the domestic price level divided by the foreign price level. C) is equal to the nominal exchange rate (measured in units of the foreign currency divided by units of home currency) multiplied by the foreign price level divided by the domestic price level. D) is the price of a domestic car divided by the price of a foreign car.
B) is equal to the nominal exchange rate (measured in units of the foreign currency divided by units of home currency) multiplied by the domestic price level divided by the foreign price level.
In the classical model with fixed income, a reduction in the government budget deficit will lead to a: A) higher real interest rate. B) lower real interest rate. C) higher level of output. D) lower level of output.
B) lower real interest rate.
If a country has a high rate of inflation relative to the United States (holding the real exchange rate fixed), the dollar will buy: A) less of the foreign currency over time. B) more of the foreign currency over time. C) the same amount of the foreign currency over time. D) an amount of foreign currency determined by the real exchange rate.
B) more of the foreign currency over time.
A "closed" economy is one in which the: A) level of output is fixed. B) price level is fixed. C) domestic interest rate equals the world interest rate. D) domestic saving is less than domestic investment.
B) price level is fixed.
To end a hyperinflation, a government trying to reduce its reliance on seigniorage would: A) print more money. B) raise taxes and cut spending. C) lower taxes and increase spending. D) lower interest rates.
B) raise taxes and cut spending.
Since 1960, the U.S. ratio of labor income to total income has: A) been about 2.5 to 1. B) remained relatively steady. C) increased steadily. D) decreased steadily.
B) remained relatively steady.
To reduce the money supply, the Federal Reserve: A) buys government bonds. B) sells government bonds. C) creates demand deposits. D) destroys demand deposits.
B) sells government bonds.
A graph of the rate of inflation in the United States over the twentieth century shows: A) an overall upward trend interrupted by a large downturn in the 1930s. B) some periods of deflation mixed with mostly positive rates of inflation before 1955 but only positive rates of inflation after 1955. C) a relatively steady, positive level throughout the century except for deflation in the 1930s. D) a constant rate of inflation in the first half of the century followed by an upward trend in the second half.
B) some periods of deflation mixed with mostly positive rates of inflation before 1955 but only positive rates of inflation after 1955.
The amount of capital in an economy is a(n) ______, and the amount of investment is a(n) ______. A) flow; stock B) stock; flow C) final good; intermediate good D) intermediate good; final good
B) stock; flow
In a small open economy, starting from a position of balanced trade, if the government increases the income tax, this produces a tendency toward a trade ______ and ______ net capital outflow. A) deficit; negative B) surplus; positive C) deficit; positive D) surplus; negative
B) surplus; positive
An increase in the price of goods bought by firms and the government will show up in: A) the CPI but not in the GDP deflator. B) the GDP deflator but not in the CPI. C) both the CPI and the GDP deflator. D) neither the CPI nor the GDP deflator.
B) the GDP deflator but not in the CPI.
An estimate of the number of unemployed workers in the economy can be obtained from: A) both the household survey and the establishment survey. B) the household survey but not from the establishment survey. C) the establishment survey but not from the household survey. D) neither the household survey nor the establishment survey.
B) the household survey but not from the establishment survey.
In the classical model with fixed income, if households want to save more than firms want to invest, then: A) the interest rate rises. B) the interest rate falls. C) output increases. D) output falls.
B) the interest rate falls.
If saving exceeds investment demand and consumption is not a function of the interest rate: A) the demand for loans exceeds the supply of loans. B) the interest rate will fall. C) the interest rate will rise. D) saving will fall.
B) the interest rate will fall.
In a Cobb-Douglas production function, the marginal product of capital will increase if: A) the quantity of labor increases. B) the quantity of capital increases. C) labor's share of output increases. D) average capital productivity decreases.
B) the quantity of capital increases.
All of the following statements about sticky prices are true except: A) in the short run, some wages and prices are sticky. B) the sticky-price model describes the equilibrium toward which the economy slowly gravitates. C) for studying year-to-year fluctuations, most macroeconomists believe that price stickiness is a better assumption than is price flexibility. D) magazine publishers tend to change their newsstand prices only every three or four years.
B) the sticky-price model describes the equilibrium toward which the economy slowly gravitates.
In the United States, bank reserves consist of: A) currency and demand deposits. B) vault cash and deposits at the Federal Reserve. C) gold deposits at the Federal Reserve. D) the money supply.
B) vault cash and deposits at the Federal Reserve.
The quantity theory of money assumes that: A) income is constant. B) velocity is constant. C) prices are constant. D) the money supply is constant.
B) velocity is constant.
Macroeconomics does not try to answer the question of: A) why some countries experience rapid growth. B) what is the rate of return on education. C) why some countries have high rates of inflation. D) what causes recessions and depressions.
B) what is the rate of return on education.
If an increasing proportion of the adult population is retired, then the labor-force participation rate: A) will increase. B) will decrease. C) will remain constant. D) may increase, decrease, or remain constant.
B) will decrease.
Suppose that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.5(Y - T). Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate, in percent. Government spending (G) is 1,000, and taxes (T) is also 1,000. When a technological innovation changes the investment function to I = 3,000 - 100r: A) I rises by 1,000 and r rises by 10 percentage points. B) I rises by 1,000 and r is unchanged. C) I is unchanged and r rises by 10 percentage points. D) I is unchanged and r rises by 15 percentage points.
C) I is unchanged and r rises by 10 percentage points.
Which statement below best illustrates the "art," rather than the "science," of macroeconomics? A) Macroeconomic data provide the motivation for new macroeconomic theory. B) Macroeconomic relationships can be expressed using symbols and equations. C) Macroeconomists must determine which simplifying assumptions clarify our thinking and which ones mislead us. D) Graphs and charts can be used to illustrate the history of macroeconomic variables.
C) Macroeconomists must determine which simplifying assumptions clarify our thinking and which ones mislead us.
In a small open economy, if the world interest rate is r3, then the economy has: A) a trade surplus. B) balanced trade. C) a trade deficit. D) positive capital outflows.
C) a trade deficit.
Checking account balances that are linked to debit cards are included in: A) M1. B) M2 only. C) both M1 and M2. D) neither M1 nor M2.
C) both M1 and M2.
An example of increasing returns to scale is when capital and labor inputs: A) both increase 10 percent and output increases 5 percent. B) both increase 10 percent and output increases 10 percent. C) both increase 5 percent and output increases 10 percent. D) do not change and output decreases 5 percent.
C) both increase 5 percent and output increases 10 percent.
The two most important factors of production are: A) goods and services. B) labor and energy. C) capital and labor. D) saving and investment.
C) capital and labor.
The value of a bank's owners' equity is called bank: A) deposits. B) reserves. C) capital. D) liquidity.
C) capital.
Demand deposits are funds held in: A) currency. B) certificates of deposit. C) checking accounts. D) money markets.
C) checking accounts.
Real GDP means the value of goods and services is measured in ______ prices. A) current B) actual C) constant D) average
C) constant
According to the model developed in Chapter 3, when taxes decrease without a change in government spending: A) consumption and investment both increase. B) consumption and investment both decrease. C) consumption increases and investment decreases. D) consumption decreases and investment increases.
C) consumption increases and investment decreases.
The money supply consists of: A) currency plus reserves. B) currency plus the monetary base. C) currency plus demand deposits. D) the monetary base plus demand deposits.
C) currency plus demand deposits.
If the money supply is held constant, then an increase in the nominal interest rate will ______ the demand for money and ______ the price level. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease
C) decrease; increase
If inflation was 6 percent last year and a worker received a 4 percent nominal wage increase last year, then the worker's real wage: A) increased 4 percent. B) increased 2 percent. C) decreased 2 percent. D) decreased 6 percent.
C) decreased 2 percent.
If a U.S. corporation sells a product to Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports ______, and net capital outflows ______. A) increase; increase B) decrease; decrease C) do not change; do not change D) do not change; increase
C) do not change; do not change
According to the definition used by the U.S. Bureau of Labor Statistics, people are considered to be unemployed if they: A) are out of a job but not looking for work. B) retired from the labor force before age 65. C) do not have a job but have looked for work in the past four weeks D) are absent from work because of bad weather or illness.
C) do not have a job but have looked for work in the past four weeks.
In a small open economy, if consumer confidence falls and consumers decide to save more, then the real exchange rate: A) rises, and net exports fall. B) and net exports both rise. C) falls, and net exports rise. D) and net exports both fall.
C) falls, and net exports rise.
Most hyperinflations end with _____ reforms that eliminate the need for _____. A) monetary; taxes B) monetary; currency C) fiscal; seigniorage D) fiscal; currency
C) fiscal; seigniorage
In the circular flow diagram, firms receive revenue from the _____ market, which is used to purchase inputs in the _____ market. A) goods; financial B) factor; financial C) goods; factor D) factor; goods
C) goods; factor
The more funds that the Federal Reserve makes available for banks to borrow through the Term Auction Facility, the _____ the monetary base and the _____ the money supply. A) smaller; smaller B) smaller; greater C) greater; greater D) greater; smaller
C) greater; greater
Assume that a bakery hires more workers and pays them wages and that the workers produce more bread. GDP increases in all of the following cases except when the bread: A) is sold to households. B) is stored away for later sale. C) grows stale and is thrown away. D) is sold to other firms.
C) grows stale and is thrown away.
According to the classical theory of money, inflation does not make workers poorer because wages increase: A) faster than the overall price level. B) more slowly than the overall price level. C) in proportion to the increase in the overall price level. D) in real terms during periods of inflation.
C) in proportion to the increase in the overall price level.
The assumption of flexible prices is a more plausible assumption when applied to price changes that occur: A) from minute to minute. B) from year to year. C) in the long run. D) in the short run.
C) in the long run.
Real GDP is a better measure of economic well-being than nominal GDP because real GDP: A) excludes the value of goods and services exported abroad. B) includes the value of government transfer payments. C) measures changes in the quantity of goods and services produced by holding prices constant. D) adjusts the value of goods and services produced for changes in the foreign exchange rate.
C) measures changes in the quantity of goods and services produced by holding prices constant.
The ex ante real interest rate is equal to the nominal interest rate: A) minus the inflation rate. B) plus the inflation rate. C) minus the expected inflation rate. D) plus the expected inflation rate.
C) minus the expected inflation rate.
GNP equals GDP ______ income earned domestically by foreigners ______ income that nationals earn abroad. A) plus; plus B) minus; minus C) minus; plus D) plus; minus
C) minus; plus
The money supply will increase if the: A) currency-deposit ratio increases. B) reserve-deposit ratio increases. C) monetary base increases. D) discount rate increases.
C) monetary base increases.
Macroeconomists call assets used to make transactions: A) real income. B) nominal income. C) money. D) consumption.
C) money.
In equilibrium, total investment equals: A) private saving. B) public saving. C) national saving. D) household saving.
C) national saving.
In a large open economy, the exchange rate adjusts so that net exports equal: A) domestic saving. B) domestic investment. C) net capital outflow. D) domestic investment plus net capital outflow.
C) net capital outflow.
In the national income accounts, consumption expenditures include all of the following except household purchases of: A) durable goods. B) nondurable goods. C) new residential housing. D) services.
C) new residential housing.
The real interest rate is equal to the: A) amount of interest that a lender actually receives when making a loan. B) nominal interest rate plus the inflation rate. C) nominal interest rate minus the inflation rate. D) nominal interest rate.
C) nominal interest rate minus the inflation rate.
Deflation occurs when: A) real GDP decreases. B) the unemployment rate decreases. C) prices fall. D) prices increase but at a slower rate.
C) prices fall.
National saving is: A) private saving. B) public saving. C) private saving plus public saving. D) private saving minus public saving.
C) private saving plus public saving.
In a closed economy with fixed output, when government spending increases: A) private saving decreases. B) private saving increases. C) public saving decreases. D) public saving increases.
C) public saving decreases.
The total income of everyone in the economy adjusted for the level of base year prices is called: A) a recession. B) an inflation. C) real GDP. D) a business fluctuation.
C) real GDP.
The supply and demand for loanable funds determine the: A) real wage. B) real rental price of capital. C) real interest rate. D) nominal interest rate.
C) real interest rate.
The major source of government revenue in most countries that are experiencing hyperinflation is: A) customs duties. B) income taxes. C) seigniorage. D) borrowing.
C) seigniorage.
National income differs from net national product by an amount called: A) depreciation. B) indirect business taxes. C) statistical discrepancy. D) net foreign factor income payments.
C) statistical discrepancy.
In a small open economy, if the world real interest rate is above the rate at which national saving equals domestic investment, then there will be a trade ______ and ______ net capital outflow. A) surplus; negative B) deficit; positive C) surplus; positive D) deficit; negative
C) surplus; positive
All of the following except _______ are important macroeconomic variables. A) real GDP B) the unemployment rate C) the marginal rate of substitution D) the inflation rate
C) the marginal rate of substitution
High-powered money is another name for: A) currency. B) demand deposits. C) the monetary base. D) M2.
C) the monetary base.
If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then: A) it cannot be determined whether the money supply increases or decreases. B) the money supply increases. C) the money supply decreases. D) the money supply does not change.
C) the money supply decreases.
According to the classical dichotomy, when the money supply decreases, _____ will decrease. A) real GDP B) consumption spending C) the price level D) investment spending
C) the price level
The CPI is determined by computing: A) an average of prices of all goods and services. B) the price of a basket of goods and services that changes every year, relative to the same basket in a base year. C) the price of a fixed basket of goods and services, relative to the price of the same basket in a base year. D) nominal GDP relative to real GDP.
C) the price of a fixed basket of goods and services, relative to the price of the same basket in a base year.
If net capital outflow is positive, then: A) imports must be positive. B) exports must be negative. C) the trade balance must be positive. D) the trade balance must be negative.
C) the trade balance must be positive.
Prices of items included in the CPI are: A) averaged, with the price of every item weighted equally. B) weighted according to the amount of the item produced in GDP. C) weighted according to the quantity of the item purchased by the typical household. D) chained to the base year by the year-to-year growth rate of the item.
C) weighted according to the quantity of the item purchased by the typical household.
The household survey conducted by the Bureau of Labor Statistics provides estimates of the number of workers ______, while the establishment survey provides estimates of the number of workers ______. A) self-employed; unemployed B) unemployed; self-employed C) with jobs; on firms' payrolls D) on firms' payrolls; with jobs
C) with jobs; on firms' payrolls
The assumption of continuous market clearing means that: A) sellers can sell all that they want at the going price. B) buyers can buy all that they want at the going price. C) in any given month, buyers can buy all that they want and sellers can sell all that they want at the going price. D) at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.
D) at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.
If the demand for real money balances is proportional to real income, velocity will: A) increase as income increases. B) increase as income decreases. C) vary directly with the interest rate. D) be constant.
D) be constant.
According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed: A) only to the labor used in production. B) partly between labor and capital used in production, with the surplus going to the owners of the firm as profits. C) equally between the labor and capital used in production. D) between the labor and capital used in production, according to their marginal productivities.
D) between the labor and capital used in production, according to their marginal productivities.
The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement. A) reserve B) margin C) liquidity D) capital
D) capital
Macroeconomists are like scientists in that they both: A) design data and conduct controlled experiments to test their theories. B) rely on data analyzed from experiments they set up in a laboratory. C) are unlimited in their use of controlled experiments. D) collect data, develop hypotheses, and analyze the results.
D) collect data, develop hypotheses, and analyze the results.
The circular flow model shows that households use income for: A) consumption, saving, and factor payments. B) consumption, taxes, and factor payments. C) taxes, saving, and factor payments. D) consumption, taxes, and saving.
D) consumption, taxes, and saving.
Compared with real GDP during a recession, real GDP during a depression: A) increases more rapidly. B) increases at approximately the same rate. C) decreases at approximately the same rate. D) decreases more severely.
D) decreases more severely.
The price received by each factor of production is determined by: A) demand for output and supply of factors. B) demand for factors and supply of output. C) demand and supply of output. D) demand and supply of factors.
D) demand and supply of factors.
In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on _____ , the amount of investment spending depends on _____, and the amount of government spending is determined _____. A) the interest rate; disposable income; by tax revenue B) the real wage; the real rental price of capital; by factor prices C) labor's share of output; capital's share of output; by the interest rate D) disposable income; the interest rate; exogenously
D) disposable income; the interest rate; exogenously
The investment function slopes ______ because there are ______ investment projects that are profitable as the interest rate decreases. A) upward; fewer B) upward; more C) downward; fewer D) downward; more
D) downward; more
In the U.S. economy today, real GDP per person, compared with its level in 1900, is about: A) 50 percent higher. B) twice as high. C) three times as high. D) eight times as high.
D) eight times as high.
In an economic model: A) exogenous variables and endogenous variables are both determined outside the model. B) endogenous variables and exogenous variables are both determined within the model. C) endogenous variables affect exogenous variables. D) exogenous variables affect endogenous variables.
D) exogenous variables affect endogenous variables.
When the real exchange rate rises: A) exports will decrease but imports will be unaffected. B) imports will decrease but exports will be unaffected. C) exports will increase and imports will decrease. D) exports will decrease and imports will increase.
D) exports will decrease and imports will increase.
GDP is the market value of all ______ goods and services produced within an economy in a given period of time. A) used B) intermediate C) consumer D) final
D) final
In a small open economy, if the world interest rate falls, then domestic investment will _____, and the real exchange rate will _____, holding all else constant. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase
D) increase; increase
In a simple model of the supply and demand for pizza, when the price of cheese increases, the price of pizza ______ and the quantity purchased ______. A) increases; increases B) decreases; increases C) decreases; decreases D) increases; decreases
D) increases; decreases
According to the model developed in Chapter 3, when government spending increases without a change in taxes: A) consumption increases. B) consumption decreases. C) investment increases. D) investment decreases.
D) investment decreases.
In the relationship expressed in functional form Y = G(K, L), Y stands for real GDP, K stands for the amount of capital in the economy, and L stands for the amount of labor in the economy. In this case G( ): A) is the growth rate of real GDP when the amount of capital and labor in the economy is fixed. B) indicates that the variables inside the parentheses are endogenous variables in the model. C) is the symbol that stands for government input into the production process. D) is the function telling how the variables in the parentheses determine real GDP.
D) is the function telling how the variables in the parentheses determine real GDP.
The world interest rate: A) is equal to the domestic interest rate. B) makes domestic saving equal to domestic investment. C) is the interest rate charged on loans by the World Bank. D) is the interest rate prevailing in world financial markets.
D) is the interest rate prevailing in world financial markets.
When people want to hold _____ money, the income velocity of money increases, and the money demand parameter k ______ . A) more; increases B) less; increases C) more; decreases D) less; decreases
D) less; decreases
Purchasing-power parity theory: A) is a completely accurate description of the real world. B) would be entirely accurate if only goods were traded. C) would be entirely accurate if all consumers had the same preferences. D) provides a reason to expect that movements in the real exchange rate will typically be small or temporary.
D) provides a reason to expect that movements in the real exchange rate will typically be small or temporary.
Holding other factors constant, legislation to cut taxes in an open economy will: A) increase national saving and lead to a trade surplus. B) increase national saving and lead to a trade deficit. C) reduce national saving and lead to a trade surplus. D) reduce national saving and lead to a trade deficit.
D) reduce national saving and lead to a trade deficit.
In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply: A) increases by $100. B) decreases by $100. C) increases by more than $100. D) remains the same.
D) remains the same.
Compared to typical open-market operations, when engaging in quantitative easing operations conducted by the Federal Reserve between 2007 and 2011, Federal Reserve purchases tended to be _____ securities. A) safer and shorter-term B) tax-favored and foreign C) smaller-denomination and higher-grade D) riskier and longer-term
D) riskier and longer-term
According to purchasing-power parity, if the dollar price of oil is higher in New York than in London, arbitrageurs will _____ oil in New York and _____ oil in London to drive _____ the price of oil in New York. A) buy; sell; up B) buy; sell; down C) sell; buy; up D) sell; buy; down
D) sell; buy; down
Given that M / P = kY, when the demand for money parameter, k, is large, the velocity of money is ______, and money is changing hands ______. A) large; frequently B) large; infrequently C) small; frequently D) small; infrequently
D) small; infrequently
An assumption of _______ is more plausible for studying the short-run behavior of the economy, while an assumption of ______ is more plausible for studying the long-run, equilibrium behavior of the economy. A) deflation; inflation B) inflation; deflation C) flexible prices; sticky prices D) sticky prices; flexible prices
D) sticky prices; flexible prices
In the national income accounts, government purchases are goods and services purchased by: A) the federal government. B) the federal and state governments. C) the state and local governments. D) the federal, state, and local governments.
D) the federal, state, and local governments.
All of the following are flows variables except: A) the number of new automobile purchases. B) the number of people losing their jobs. C) business expenditures on plant and equipment. D) the government debt.
D) the government debt.
In the United States since the end of World War II: A) the labor-force participation rates of both men and women have increased. B) the labor-force participation rates of both men and women have decreased. C) the labor-force participation rate of men has increased, while the labor-force participation rate of women has decreased. D) the labor-force participation rate of men has decreased, while the labor-force participation rate of women has increased.
D) the labor-force participation rate of men has decreased, while the labor-force participation rate of women has increased.
What determines the ratio of the wage to rental rate of capital in a competitive, profit-maximizing economy with constant returns to scale? A) the quantity of economic profits earned by firm owners B) the interest rate C) the ratio of public saving to private saving D) the marginal productivity of labor relative to the marginal productivity of capital
D) the marginal productivity of labor relative to the marginal productivity of capital
Which of the following is the best example of a sticky price? A) the price of a barrel of oil B) the price of the U.S. dollar in terms of euros C) the price of a share of stock D) the price of a soda in a vending machine
D) the price of a soda in a vending machine
In a simple model of the supply and demand for pizza, the endogenous variables are: A) the price of pizza and the price of cheese. B) aggregate income and the quantity of pizza sold. C) aggregate income and the price of cheese. D) the price of pizza and the quantity of pizza sold.
D) the price of pizza and the quantity of pizza sold.
Currency equals: A) M1. B) the sum of funds in checking accounts. C) the sum of checking accounts and paper money. D) the sum of coins and paper money.
D) the sum of coins and paper money.
The value added of an item produced refers to: A) a firm's profits on the item sold. B) the value of the labor inputs in the production of an item. C) the value of a firm's output less the value of its costs. D) the value of a firm's output less the value of the intermediate goods that the firm purchases.
D) the value of a firm's output less the value of the intermediate goods that the firm purchases.
In computing GDP: A) expenditures on used goods are included. B) production added to inventories is excluded. C) the amount of production in the underground economy is imputed. D) the value of intermediate goods is included in the market price of the final goods.
D) the value of intermediate goods is included in the market price of the final goods.
An economy's ______ equals its ______. A) consumption; income B) consumption; expenditure on goods and services C) expenditure on goods; expenditures on services D) total income; total expenditure on goods and services
D) total income; total expenditure on goods and services
Using a market-clearing model to analyze the labor market is ______ because wages usually change ______. A) realistic; frequently B) realistic; infrequently C) unrealistic; frequently D) unrealistic; infrequently
D) unrealistic; infrequently